Better, but currency a worry

The latest New Zealand
Manufacturers and Exporters Association (NZMEA) Survey of
Business Conditions completed during March 2014, shows total
sales in February 2014 increased 9.16% (year on year export
sales increased by 14.87% with domestic sales increasing
3.99%) on February 2013.

The NZMEA survey sample this
month covered NZ$406m in annualised sales, with an export
content of 50%.

Net confidence was at 35, up on
January’s result of 21.

The current performance index (a
combination of profitability and cash flow) is at 98.7,
unchanged from January, the change index (capacity
utilisation, staff levels, orders and inventories) was at
105, up from 102 in the last survey, and the forecast index
(investment, sales, profitability and staff) is at 107.67,
up on Januarys result of 107.17. Anything less than 100
indicates a contraction.

“This month’s survey shows a general
improvement on nearly all measures other than the small
decrease in staff numbers.”

“We have now seen the
first, of several, OCR increases by the Reserve Bank of New
Zealand (RBNZ) despite our overvalued currency. Following
this increase we have seen the dollar reach new post float
highs on the Trade Weighted Index (TWI). The RBNZ was clear
about their traffic light system for judging whether
currency intervention is warranted, shedding further crocodile tears and admitting to
deliberately deflating the tradeable sector in line with the
tightening bias in monetary policy – we have seen all this
before.”

“Interest rates are a blunt tool and fail to
target inflation at the source in our domestic economy; the
traded sector is not the source of inflation but deflation
there does lower theheadline result.”

“As this
trend continues the tradable sector will continue to cease
operation in New Zealand, through closure or relocation, and
our economy will regress to the export of minimally
processed raw materials. There is not much added value in that strategy. We
need to think beyond milk powder and
logs.”

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